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AUDIT PLANNING AND

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Audit Planning. Need an effective and ... Planning an Audit and Designing an Audit Approach ... Evaluating the disclosure of the related party transactions. ... – PowerPoint PPT presentation

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Title: AUDIT PLANNING AND


1

AUDIT PLANNING AND DOCUMENTATION
8
AN AUDITOR WHO DOES NOT UNDERSTAND A CLIENTS
BUSINESS TAKES A GREAT RISK
2
Audit Planning
  • Need an effective and efficient audit plan
  • -We need sufficient appropriate audit evidence
  • 2. Under-audit - see you in court
  • Over-audit - lose clients to competitors
  • -Keep audit costs reasonable

3
Planning
The work is to be adequately planned, and
assistants, if any, are to be properly supervised.
4
Planning an Audit and Designing an Audit Approach
Accept client and perform initial audit planning.
Understand the clients business and industry.
Assess client business risk.
Perform preliminary analytical procedures.
5
Planning an Audit and Designing an Audit Approach
Set materiality and assess acceptable audit
risk and inherent risk.
Understand internal control and assess control
risk.
Gather information to assess fraud risks.
Develop overall audit plan and audit program.
6
Preplanning
  • Do we want this client?
  • - Are we independent?
  • - Are we technically competent?
  • - Is client reputable?
  • Who will use financial statements?
  • Why does client want an audit?

7
Understanding with Client
  • Must obtain and document understanding (SAS
    83)
  • Written engagement letter required starting in
    2008
  • - Timing
  • - Fees
  • - Client assistance
  • - Other services
  • - Limits of audit
  • SAS 108 requires establishment of understanding
    with client through written communication
  • Through use of engagement letter

8
Communication With Predecessor

Required by SAS 84
Purpose is to assess whether to accept client

Successor Initiates
predecessor needs client permission to release
information
9
Successor - Predecessor
Communication
  • Usually review prior auditor working papers
  • - Determine whether problems exist
  • - Support beginning asset balances (Why?)

10
ANALYTICAL PROCEDURES
Analytical procedures used in planning the
audit should focus on 1. Material weaknesses
in internal control. 2. Predictability of
financial data from individual transactions. 3.
The various assertions that are embodied in the
financial statements. 4. Areas that may
represent specific risks relevant to the audit.
11
  • Concern is that they are adequately disclosed
  • By nature, are not arms length

12
When auditing related party transactions, an
auditor places primary emphasis on
  • Confirming the existence of the related
    parties.
  • Verifying the valuation of the related parties.
  • Evaluating the disclosure of the related party
    transactions.
  • Ascertaining the rights and obligations of the
    related parties.

13
Specialists
  • Used to address complex issues where auditor
    is not qualified
  • May be hired by client or auditor
  • Auditor should evaluate qualifications and
    relationship
  • with client
  • May refer to specialist in audit report only
  • when opinion is qualified or explanatory
    paragraph
  • added based on specialists report

14
SUMMARY OF THE PURPOSES OF AUDIT PLANNING
A MAJOR PURPOSE IS TO PROVIDE INFORMATION TO AID
THE AUDITOR IN ASSESSING ACCEPTABLE AUDIT RISK
AND INHERENT RISK.
15
Working Papers AKA Audit Documentation
Purposes of Working Papers Ownership of Working
Papers Confidentiality of Working Papers Contents
and Organization Permanent Files Current Files
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